If someone is convicted of fraud or some other “white collar” crime, the penalties may be largely financial. While they may not be looking at prison time (although in some cases, that’s possible), these financial consequences can be painful.
One that sounds particularly painful is “disgorgement.” It’s often referred to as “disgorgement of ill-gotten gains.” Unlike fines and penalties that a person (or business) may be ordered to pay the government, disgorgement involves repaying those who have been defrauded – often through insider trading, embezzlement or violation of the Foreign Corrupt Practices Act (FCPA).
How is the amount determined?
It’s rarely as simple as returning the money a person spent or invested. The idea behind disgorgement is that it should represent any fraudulently obtained profit. This can include paying interest and penalties to make the victims whole and compensate them for the earnings they could have had if they hadn’t put their money in a fraudulent or illegal venture.
Often, the Securities and Exchange Commission (SEC) does the disgorgement calculations for federal crimes. There’s often no way to specifically determine the amount a person or business has to pay (especially if there are multiple victims with varying losses). As one court ruled, it’s sufficient for the amount to be a “reasonable approximation of the profits which are causally connected to the violation.”
Probably the most notable and costliest disgorgement occurred back in 2010. Former Goldman Sachs CEO Lloyd Blankfein was ordered to pay $550 million for his role in the sale of subprime mortgages. Disgorgements were also ordered for other financial institutions and their executives involved in that financial crisis.
If you’re facing an allegation that could result in disgorgement and/or other penalties and consequences, it’s critical to understand how these are calculated. The first step, however, is to protect your rights and present your case.
